CEO Optimism and Competitive Shocks

61 Pages Posted: 23 Aug 2018 Last revised: 20 Oct 2021

See all articles by Binay Adhikari

Binay Adhikari

University of Texas at San Antonio

Shradha Bindal

University of Kansas - Finance Area

T. Colin Campbell

University of Cincinnati - Department of Finance - Real Estate

Shane A. Johnson

Texas A&M University - Department of Finance

Date Written: October 2, 2021

Abstract

We examine differences in how overoptimistic and non-overoptimistic CEOs respond and perform when faced with competitive shocks. Using tariff reductions as exogenous shocks to competition and triple difference-in-differences specifications on matched samples, we find that when competition increases, firms with overoptimistic CEOs slash their profit margins and increase research and development and advertising more than non-overoptimistic CEOs do. These firms achieve increased domestic market share and increased value relative to firms led by non-overoptimistic CEOs. Our empirical results support extant theories that predict that CEO overoptimism is beneficial under increased competition.

Keywords: CEO overconfidence, competition, tariffs, firm value, market share

JEL Classification: D22, L11, G31, F14, M12

Suggested Citation

Adhikari, Binay Kumar and Bindal, Shradha and Campbell, Timothy Colin and Johnson, Shane A., CEO Optimism and Competitive Shocks (October 2, 2021). Available at SSRN: https://ssrn.com/abstract=3223778 or http://dx.doi.org/10.2139/ssrn.3223778

Binay Kumar Adhikari

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
2104585349 (Phone)

Shradha Bindal

University of Kansas - Finance Area ( email )

1654 Naismith Drive
Lawrence, KS 66045
United States

Timothy Colin Campbell

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

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